Governor Herbert expects state finances to improve without tax hike

Gov. Gary Herbert is counting on the state climbing out of the red next year — without any tax increases.

"As we look forward, there is a sense of hope and optimism," the governor said after releasing his first state budget proposal Friday. "I think there is, in fact, some daylight at the end of the tunnel."

His $11.3 billion spending plan for the budget year that begins July 1, 2010, calls for no cuts in public or higher education and even a modest $151 million increase spread among other state agencies.

But even though the governor believes state revenues will finally start heading up, he said tax collections have fallen another $183 million short in the current budget year.

To help cover that shortfall, Herbert said he'll sign an executive order mandating a 3 percent cut for state agencies that will last through June 30, 2010, and recommended tapping other sources, including a $100 million fund set aside for schools. The governor is leaving it up to state agencies to decide how to cut.

Those reductions could mean furloughs for some state workers, possibly as much as one day a month for the next six months. Herbert said agencies are being asked to look everywhere for savings, such as money now being spent on bottled water and transportation.

Come the start of the next budget year, though, Herbert believes state finances will be on the rebound.

"That's not pie-in-the-sky," the governor told the Deseret News editorial board later Friday. "I'm not just being Pollyanna."

Of course, he said, the $34 million net gain in revenue he's budgeted isn't a lot. "But it shows we're moving in the right direction," he said.

Raising taxes now could reverse the turnaround, Herbert warned. The governor honored his pledge not to propose tax hikes in his budget, although he does suggest that individuals pay quarterly state income taxes if they don't have paycheck withholding. Herbert also wants lawmakers to take away the 1.31 percent of sales taxes that larger retailers are allowed to keep as compensation for collecting the revenue for the state.

"Tax hikes at this point would be counterproductive to our long-term economic stability and vitality," he said.

But there will still be special interest groups and some lawmakers, including Republicans in his own party, who'll want them. GOP legislative leaders are already talking about boosting the tobacco tax as well as restoring the sales tax on food.